Quiz 9 :
Application: International Trade

Trade decisions are based on the principle of absolute advantage.

The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from participating in a market.

According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

The world price of cotton is the highest price of cotton observed anywhere in the world.

If the world price of a good is greater than the domestic price in a country that can engage in international trade,then that country becomes an importer of that good.

Without free trade,the domestic price of a good must be equal to the world price of a good.

The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy.If the world price of goose meat is $3 per pound and the domestic price of goose meat without trade is $2 per pound,then Aviana should export goose meat.

If Argentina exports oranges to the rest of the world,Argentina's producers of oranges are worse off,and Argentina's consumers of oranges are better off,as a result of trade.

If a country's domestic price of a good is lower than the world price,then that country has a comparative advantage in producing that good.

When a country allows international trade and becomes an importer of a good,domestic producers of the good are better off,and domestic consumers of the good are worse off.

If the United Kingdom imports tea cups from other countries,then U.K.producers of tea cups are better off,and U.K.consumers of tea cups are worse off,as a result of trade.

If Belgium exports chocolate to the rest of the world,then Belgian chocolate producers benefit from higher producer surplus,Belgian chocolate consumers are worse off because of lower consumer surplus,and total surplus in Belgium increases because of the exports of chocolate.

In principle,trade can make a nation better off,because the gains to the winners exceed the losses to the losers.

Suppose the Ivory Coast,a small country,imports wheat at the world price of $4 per bushel.If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat,then,other things equal,the price of wheat in Ivory Coast will increase,but by less than $1.

The small-economy assumption is necessary to analyze the gains and losses from international trade.

The greater the elasticities of supply and demand,the smaller are the gains from trade.

If a tariff is placed on watches,the price of both domestic and imported watches will rise by the amount of the tariff.

When a government imposes a tariff on a product,the domestic price will equal the world price.

A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade.

When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel,then the domestic price of steel will increase as a result.